3 Things You Must Watch in Valley National's Earnings

Valley National is on deck to announce fourth-quarter earnings on Wednesday morning, and investors need to pay special attention to three areas of that release.

1. Net interest margin and incomeAs earnings season winds to a close -- at least in regard to most banks -- investors are probably sick of hearing about net interest margins and the impact on a bank's bottom line. Nevertheless, net interest margin is important to keep an eye on because it relates directly to how the majority of banks earn most of their money, and a large decline can often be disastrous if a bank isn't able to show income in other areas.

During the third quarter, Valley National experienced a slight 6-basis-point decline in net interest margin, which isn't too bad, though it was a 40-basis-point decline from the same quarter in 2011. Despite the decline in the net interest margin over the past year, the bank's net interest income remained relatively flat, primarily because of an increase in average loans over the year. If the bank can report another quarter of minimal net interest margin decline, the market should have little to worry about on Wednesday morning.

2. Change in asset qualityValley National already has minimal assets categorized as "nonperforming," with only 1.17% of total assets categorized as such at the end of the previous quarter. Nevertheless, there is always room for improvement. One place investors should look is at the individual loan sectors of the balance sheet, particularly commercial and industrial loans and commercial real estate loans. The latter are the largest category of non-accrual loans, while the former is the largest category of loans that are close to entering nonperforming status.

3. Dividend announcementsValley National is a popular regional bank, in part because of its relatively sizable dividend. At $0.65 per share, the bank is currently yielding around 6.6%, a truly remarkable rate for a non-REIT financial company. In addition to a cash dividend every quarter, Valley National isn't shy about issuing stock dividends as well, doing so in each of the past 10 years. The cash and stock dividends that Valley pays out every year are just another way for the bank to return value to shareholders, and while I don't expect any major dividend announcement with this earnings release, it should be something to keep an eye on.

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